Private healthcare market criticised over lack of competition

OFT says patients are not given enough information about costs, with additional fees for PMI policyholders a particular concern

A lack of competition among private hospitals and consultants 'has pushed the price of health insurance up to unsustainable levels', according to Bupa's managing director. Photograph: Peter Macdiarmid/Rex Features

Patients receiving treatment via private healthcare are not being given enough information about the costs and quality of different consultants because of a lack of competition in the market, according to the Office of Fair Trading.

The consumer watchdog has provisionally decided to refer the £5bn private healthcare market to the Competition Commission for investigation.

As well as a lack of easily comparable information on the quality and costs of private healthcare services, it also concluded that competition is being hampered by a lack of providers.

Just five providers – General Healthcare Group, Nuffield Health Hospitals, Ramsay Health Care UK, Spire Healthcare and HCA – account for more than three-quarters of the private healthcare market. In some areas of the country there are pockets of particularly high concentration, with private healthcare providers owning the only local hospital, it said.

It also pointed to a number of features of the private healthcare market that, it said, combine to create significant barriers to new competitors entering the market and being able to offer private patients greater choice. Private providers also appear to be offering incentives such as loyalty payments to consultants for treating patients at a particular facility – a practice the OFT said could raise such barriers further.

"It is important that patient demand and choice are able to drive competition and innovation in this market with a view to better value for all patients," said John Fingleton, OFT chief executive.

About 80% of private healthcare services are paid for by patients' private medical insurance (PMI) policies, with about one in six people in the UK holding such a policy.

One issue of particular concern to these policyholders is that they are also often hit with extra fees because some charges are not covered under the terms and conditions of their policy, the OFT said. This is not always made clear when a policy is taken out.

Some progress has been made to improve this, the OFT said. The Financial Services Authority and the Association of British Insurers have agreed to work together to make sure insurers make any shortfall payments clear to their customers, both at the point of sale and at the time a patient makes a claim under a policy.

Dr Natalie-Jane Macdonald, managing director of Bupa Health and Wellbeing, said she welcomed the OFT's findings. "For too long, the lack of competition among private hospitals and consultants in private practice has pushed the price of health insurance up to unsustainable levels," she said.

"We have been saying for some time that we need more competition and efficiency among private hospitals and consultants in the UK and are pleased this has now been recognised by the OFT."

However, private hospital group BMI Healthcare said it did not believe a referral to the Competition Commission was necessary. "Private healthcare in the UK delivers cost-effective outcomes quickly at very high quality hospitals close to where patients live," said Stephen Collier, the company's group chief executive.

The OFT's decision to refer the market to the commission is subject to a consultation exercise that will close on 30 January. Following this the OFT will make a final decision on whether or not to refer the market to the commission before the end of March 2011.